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Apple's iBeacon location sensing technology, based on the Bluetooth radio in your iPhone, promises to personalize the world around you. For users, this increasingly popular technology changes the question of "Where am I?" into the announcement "Here I am!"

An iBeacon is a Bluetooth Low Energy radio that broadcasts a signal in a given area, say the doorway to a clothing or grocery store. Your iPhone – if it has Bluetooth 4.0, and the radio is turned on, and iOS notifications and location services are active – can detect that signal and query the beacon. The beacon uses radio signal strength to figure out the phone’s location and can share that with iOS. Your phone shows an invitation from the beacon to enable something like “in-store notifications,” which involves sharing your Bluetooth-determined location.

If you accept, your phone downloads an app – over a Wi-Fi or cellular link – and the store can then send you stuff, such as coupons or special offers, or provide services such as buying advice, product ratings, or an updated loyalty card, as you move within range of different beacons throughout the store.

Apple’s App Store app for iBeacon notifications.

By itself, an iBeacon can’t track you. Its job is to create a kind of electronic tripwire that sets up a connection through your iPhone between you and a backend server of some kind. Only then, can “the system” see where you are, deduce something about your interests, and present information tailored to you and your position.

Apple itself uses iBeacon in its own retail stores [see photo, above]. Customers walk into the store past an iBeacon, receive a notification to enable “in-store notifications” and if they agree, are then digitally greeted with a dashboard for that store’s location. The NFL used iBeacons at its recent “Super Bowl Boulevard” festivities along Broadway in Times Square. Later this year 20 major league baseball stadiums will feature iBeacon deployments.

But the same technology is capable of supporting more advanced services in the future, including mobile payments. Apple, long criticized for not making use of distance-challenged Near Field Communications (NFC) chips in its phones for a mobile wallet application, is now seen by some as using iBeacon as part of a Bluetooth-based alternative to NFC.

Mashable’s Lance Ulanoff gives a clear account of his recent iBeacon experience at Apple’s Grand Central Store in New York City.

Here’s how he describes the purchase he made there, using his iPhone and the EasyPay system: “We started by using the iPhone to scan the product barcode and then we had to enter our Apple ID, pretty much the way we would for any online Apple purchase [using the credit card data on file with one’s Apple account]. The one key difference was that this transaction ended with a digital receipt, one that we could show to a clerk if anyone stopped us on the way out.”

He draws an important conclusion: “With iBeacon and Bluetooth LE, Apple may have created a far more palatable and more passive way of paying digitally, especially since it relies on a payment method iOS customers already know.”

What is iBeacon?

IBeacon is a new technology that extends Location Services in iOS. Your iOS device can alert apps when you approach or leave a location with an iBeacon. In addition to monitoring location, an app can estimate your proximity to an iBeacon (for example, a display or checkout counter in a retail store).

IBeacon was introduced formally when Apple released iOS 7 last fall. But it’s based on the Bluetooth Low Energy (BLE) radio that Apple first introduced with the iPhone 4S, and then added to the iPad, iPad mini, and iPod Touch. The radio has the standard BLE protocol stack. On top of that, Apple created what it calls the Core Bluetooth framework, which is a set of classes used by iOS and OS X apps to communicate with other BLE devices. With the framework, an iOS app can discover, explore, and interact with “peripheral” devices, such as a digital thermostat; since iOS 6, the iOS device can act itself as a peripheral, sharing data with other devices, including those running OS X and iOS.

But an iBeacon is a special class of BLE devices. “A beacon is a dumb broadcasting device, with a fairly high data rate, mounted on a wall,” says Aaron Mittman, CEO of SonicNotify, a startup that offers both beacons themselves and a backend content management system to serve coupons, promotions, messages and the like to iOS, and Android, phone users. An iBeacon communicates only with the iPhone – there’s no backend link to a Wi-Fi network or the Internet -- and only in a very limited way.

SonicNotify offers a handful of beacon models in different sizes, shapes, and colors. Some can plug into a wall outlet; others use quarter-sized nickel cadmium batteries or standard AA or even C size batteries.

The beacons broadcast their signal over a configured area, typically up to about 50 meters. When the user walks within range, the iPhone “hears” the broadcast, and in effect, asks “what is this about?” Often, it’s an invitation to download a retailer’s app and get information about special offers. If the user accepts, he is agreeing to share his location information: the app uses the iPhone’s Wi-Fi or cellular radios to connect to the SonicNotify server, share its location information, download and installs the app, and receives notifications.

As Mittman says, the iBeacon is simply a “trigger,” or a kind of digital tripwire, that alerts the phone and its user that some content specific to the store or venue where he is standing is available.

Startup SnipSnap offers an app, with the same name, that lets iOS and Android users download or scan a coupon and then redeem it. The app ties into the SonicNotify backend. “IBeacon can do location-based monitoring without turning on [the battery-draining] GPS,” says Ted Mann, founder and CEO. “And it can do fine-grained, accurate locating. We can now do location-based reminders indoors and that’s something we couldn’t do before.”

Brilliant simplicity, daunting complexity

The pairing of the stand-alone beacon and the iPhone’s BLE radio-plus-software-framework is a brilliantly simple stroke by Apple. It makes accessible millions of iOS users, while still giving them control over whether to participate in iBeacon deployments. But for retailers, while the network connection with these millions of users is simple, almost nothing else is.

“This is not a ‘stick it on the wall and it works’ scenario,” says Sam Ganga, executive vice president, commercial division, DMI, a Bethesda, Md., company that specializes in managed services for enterprise mobility, coupled with analytics that can sift and assess a mass of mobile data. “You have to survey the store or venue, install potentially a lot of beacons, create a mobile app, capture the right information, integrate with backend systems, and have the analytics to understand the data you capture. It’s not a small investment.”

As a result, many retailers are actually proceeding cautiously, according to Ganga. Surprisingly, their initial interest is not in deluging users with offers. “What in-store location data really means is understanding customer behavior,” he says. “When my customers enter the store, how many turn left and how many turn right? Will that affect what I put in my endcaps [the end-of-aisle displays and promotions]? The idea is monetizing this insight into behavior, and then showing customers how they can benefit from this data.”

It’s an idea that is drawing intense interest. Estimote, founded less than two years ago, targets its beacons and software development tools, and programming services, to integrators and enterprises experimenting with beacons. It released its beacon software development kit in September 2013: 10,000 developers have downloaded it, according to Mark Modzelewski, an investment adviser to the company, founded in Poland, with U.S. offices in Walnut, Calif. Experimenters include big box and boutique retailers, marketing and advertising companies, museums, and medical centers.

iBeacon and mobile payments

Many now believe that iBeacon will be a key part of an Apple strategy for mobile transactions. “We feel strongly iBeacon will be part of a mobile payments plan,” says Walter Chen, CEO of PassbeeMedia, a startup that offers online software tools that let developers create, distribute, and manage “passes,” which is Apple’s term for an array of digital documents – coupons, loyalty cards, receipts, boarding passes and the like.

Mobile payments, says Chen, is a “multi-sided network problem.” And it’s ultimately all about one thing. “It’s all about managing risk,” he says. “People are taking a risk in moving money around.” Everyone involved – consumer, retailer, bankers, payment network vendors, all need to feel “comfortable” and secure, he says.

With beacons, merchants can communicate with a mobile device, launching a process that creates a secure handshake with the device, and authenticates the user. Unlike NFC, which requires the phone and reader to be touching or nearly touching, BLE lets this take place over a much greater distance, without the need for buying an NFC-equipped phone or adding NFC readers at the point of sale.

Ganga speculates that Apple can use its existing data about who you are -- your Apple ID, your registered iOS device and credit card data -- and combine it with in-store data about where you are, in order to facilitate mobile payments.

“Apple knows who you are,” he says. “If you’re at Walmart, the store knows [via iBeacon] where you are. You already have an Apple account, with a credit card. If you’re buying clothes at Walmart, you can use this existing infrastructure as a payment conduit. Apple doesn’t need to re-invent the wheel.”

There are plenty of challenges. Already privacy advocates are raising fears about the kind of data retailers and others might collect, and how they might use that data. Beacon infrastructures are so new, there are a range of potential vulnerabilities, according to Ty Rollin, CTO for Mobiquity, a mobile solutions firm. He has a recent blogpost on the results a series of tests the company ran to assess beacon weakpoints.

They include: lack of management and visibility into the beacons themselves; some beacons may be vulnerable to spoofing or cloning; too many beacons can interfere with each other; consumers could end up coping with a barrage of signals, and messages, and quickly classify all of them as “spam.”

All the iBeacon experimentation and predictions can’t hide the ultimate risk for retailers who try to exploit the technology.

“If you alienate a customer, it’s very, very hard to get them back,” says DMI’s Ganga.